It’s a good time to be in stocks, according to Omega Advisor’s Steve Einhorn.
The stock market should forge ahead on its bull run, Einhorn said in an email Sunday to macro traders that was viewed by Business Insider.
Strong manufacturing data is supporting strong numbers in the consumer and housing sectors, according to Einhorn, vice chairman of Lee Cooperman’s $5.5 billion hedge fund Omega.
“I believe the manufacturing
sector has exited [its] recession and is now growing,” he wrote in the email. “[T]his would be a plus for the US economy in that it would contribute to a long lasting expansion, and a growing manufacturing sector would lift [S&P500 earnings per share] and help sustain [earnings per share] growth.”
In turn, the manufacturing sector recovery, combined with a low neutral federal funds rate, is increasing “the odds of a long lasting US equity bull market,” Einhorn wrote.
The view echoes a 48-page note that Einhorn co-wrote last month, in which Omega explained why there’s not much to worry about in the economy.
Einhorn, in his more recent note, pointed out several data points that show an improvement in manufacturing:
- Industrial production
- Manufacturing PMI
- Earnings from S&P 500 industrial companies in the second quarter, including transportation, which is up year over year
- Firmer oil/commodity prices.
An additional datapoint released Thursday, core capital goods orders, showed strong numbers, further supporting Einhorn’s point about manufacturing, he told Business Insider by telephone.
This “says to me that we are in an economic expansion that will last a long time,” he said. “That is a reason, [though] not the only reason, to believe that the in-place equity bull market should last a long time… at least another two years, if not longer.”
US shares in particular should benefit, he added. But there are also other ways investors could benefit from manufacturing’s strength, he wrote in the email, including:
“Shorting the short end of our yield curve, though this could be (has been) a tough trade given the Federal Reserve is likely to continue to go slow in its tightening; companies that are most leveraged via revenue/[earnings per share] to better manufacturing activity/firmer commodity prices, where valuation is attractive (I leave this to our relevant analysts). Year to date, the industrial sector ETF is up 12.5% vs 7% for the [S&P 500].”
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